April 28, 2010

Senators Put Goldman on Defensive Over Mortgage Deals

“Although I don’t recall the exact words that I used, I recall informing ACA that Paulson’s fund was expected to buy credit protection on some of the senior tranches of the AC-1 transaction,” Mr. Tourre said in his opening statement. “This necessarily meant that Paulson was expected to take some short exposure in the transaction.”

Add to Portfolio

Under questioning, Mr. Tourre defended his actions, but conceded that he should have written that the deal’s portfolio was selected by ACA with suggestions from Mr. Paulson and IKB, a large German bank that is the other investor in the transaction. He said he did not mislead ACA or IKB and that Goldman had “no economic motive” to design the deal to fail.

The hearing cast its session as reaching beyond the scope of what happened to one large bank several years ago. In what almost added up to a light moment, Senator Mark L. Pryor, Democrat of Arkansas, said the American people wanted to know what went wrong and “how we can fix it,” adding that Americans feel that Wall Street contributed to the financial crisis. “People feel like you are betting with other people’s money and other people’s future,” he said. “Instead of Wall Street, it looks like Las Vegas.”

Senator Ensign, of Nevada, said he took offense at the comparison, saying that in Las Vegas the casinos do not manipulate the odds while you are playing the game. The better analogy, he said, would be to someone playing a slot machine while the “guys in Wall Street” were “tweaking the odds in their favor.”

The Goldman witnesses were also asked whether they had regrets or sympathy, and whether they thought the bank contributed directly to the financial crisis. Mr. Sparks said that he and colleagues “have sympathy” for those hurt and acknowledged mistakes, but not improper conduct. “Credit standards over all got too loose,” he said.

Mr Birnbaum, when pressed, said they were “sympathetic to the negative impact of that bubble.”

Mr. Swenson noted: “I do not think we did anything wrong. There are things that we wish we could have done better in hindsight.”

And Mr. Tourre said that he took full responsibility for his actions. “I am sad and humbled by what happened in the market in 2007 and 2008,” he said, “but I believe my conduct was proper.”

(Page 2 of 2)

“Although I don’t recall the exact words that I used, I recall informing ACA that Paulson’s fund was expected to buy credit protection on some of the senior tranches of the AC-1 transaction,” Mr. Tourre said in his opening statement. “This necessarily meant that Paulson was expected to take some short exposure in the transaction.”

Add to Portfolio

Under questioning, Mr. Tourre defended his actions, but conceded that he should have written that the deal’s portfolio was selected by ACA with suggestions from Mr. Paulson and IKB, a large German bank that is the other investor in the transaction. He said he did not mislead ACA or IKB and that Goldman had “no economic motive” to design the deal to fail.

The hearing cast its session as reaching beyond the scope of what happened to one large bank several years ago. In what almost added up to a light moment, Senator Mark L. Pryor, Democrat of Arkansas, said the American people wanted to know what went wrong and “how we can fix it,” adding that Americans feel that Wall Street contributed to the financial crisis. “People feel like you are betting with other people’s money and other people’s future,” he said. “Instead of Wall Street, it looks like Las Vegas.”

Senator Ensign, of Nevada, said he took offense at the comparison, saying that in Las Vegas the casinos do not manipulate the odds while you are playing the game. The better analogy, he said, would be to someone playing a slot machine while the “guys in Wall Street” were “tweaking the odds in their favor.”

The Goldman witnesses were also asked whether they had regrets or sympathy, and whether they thought the bank contributed directly to the financial crisis. Mr. Sparks said that he and colleagues “have sympathy” for those hurt and acknowledged mistakes, but not improper conduct. “Credit standards over all got too loose,” he said.

Mr Birnbaum, when pressed, said they were “sympathetic to the negative impact of that bubble.”

Mr. Swenson noted: “I do not think we did anything wrong. There are things that we wish we could have done better in hindsight.”

And Mr. Tourre said that he took full responsibility for his actions. “I am sad and humbled by what happened in the market in 2007 and 2008,” he said, “but I believe my conduct was proper.”